Summit Notebook

Exclusive outtakes from industry leaders

First, be confident

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As China Inc shops for assets almost everywhere across the planet, some people know what they want. Others are just hurrying to grab some company that’s become undervalued during the global financial crisis.
 
At the Reuters China Investment Summit in Hong Kong, we asked one of JPMorgan’s top deal advisers — Brian Gu, head of M&A for Greater China — if he had any suggestions for cash-rich Chinese. His answer was simple: First, be confident.
 
    “For any M&A, they need the confidence that they aren’t getting into anything that’s messy. They have to demonstrate strong integration and a capability to absorb those assets,” said Gu, a biochemist-turned investment banker.
 
    “A lot of companies want to make minority investments because they just don’t have the confidence to handle a full-blown integration.” Instead, he said, companies are taking a phased approach — buy 20 percent, send some representatives to get to know the managers and then make the decision later on whether to buy the whole company.
 
    In fact, not many Chinese overseas acquirers have shown much confidence, including Lenovo — whose chairman once said that it may take years to see whether the purchase of IBM’s PC business would succeed — and China Minsheng Banking Corp. Minsheng bought a minority stake in UCBH and the shares of the American company sank during the financial crisis.
 
    Gu was unenthusiastic about Chinese companies buying into distressed assets. “With distressed transactions, it’s easier to see them buying into simpler assets, such as natural resources or large capital equipment assets”, he said, adding he believes China Inc knows how to value and operate natural resources better than other, more complicated businesses.
 
    “(Chinese companies) don’t have to be involved in turning around a distressed company. That’s why you see a lot of action in those sectors rather than making bold moves where you buy big operations that involve hundreds of thousands of employees.”
 
    Just months ago, a little-known Chinese company called Tengzhong surprised markets with its plan to buy GM’s troubled Hummer unit. The deal is now still subject to final agreement between Tengzhong and GM as well as Beijing’s approval.
 
    Now, the question for Tengzhong — is it confident it can succeed with Hummer where GM has already failed?

Photo Caption: Brian Gu, JP Morgan’s head of M&A for Greater China, speaking at the Reuters China Investment Summit.

IBM skips around China Internet censorship

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Foreign companies in China, which has the world’s biggest online community, have faced allegations of bowing to censorship rules in their hunt for market access. To be careful, they usually avoid questions on the subject altogether or deflect them with humour.

“I don’t think I am the expert to comment on this,” Shirley Yu-Tsui, a vice president of strategy for IBM greater China, said at the Reuters China Investment Summit.

from Changing China:

Look in the mirror

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The U.S. rejection of the $18.5 billion bid by China's top offshore oil company, CNOOC Ltd, for  Unocal in 2005 was not a move worthy of a world power such as the United States, asserts a Chinese academic with the government's top economic planning agency.

"If you are weak, then I can understand," said Chen Dongqi, deputy director of the Academy of
Macro-Economic Research under the National Development and Reform Commission (NDRC).

from Changing China:

Don’t bank on mortgage spike

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By Michael Wei

Don't count on a recent spike in home loans to greatly improve earnings at Chinese banks. That's because they are still a relatively small part of overall lending.

"It is not expected to have a huge impact on banks' overall earnings," Gao Shanwen, Essence Securities' chief economist said at the Reuters China Investment Summit, speaking about the rise in mortgage lending. Mortages make up only about 10 percent of total lending at present.

from Changing China:

Where others won’t go

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Chinese mining companies are expanding overseas because they are cost-effective and willing to work in dangerous and risky areas where others are unwilling to go, Yang Junmin, vice general
manager of Beijing Sinodrill, asserted at the Reuters China Investment Summit.

Some critics accuse Beijing of supporting corrupt regimes in Africa, the Middle East and Latin American, where Chinese companies are investing aggressively to secure access to raw materials to fuel the country's rapid economic growth.

China’s evolving role from producer to consumer

Hardly a day goes by now without some Chinese firm striking a deal to buy assets overseas, but the country’s best prospects for growth may be right in its own backyard. Vivi Lin in Beijing reports on how the world’s workshop is fast becoming one of the world’s top consumers.

Expect action in Japanese M&A

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After falling off a cliff at the start of this year as the global financial crisis gripped, mergers and acquisitions by Japanese companies overseas are likely to pick up again in the second half of this year, according to boutique Japanese M&A advisory firm Recof Corp.

There won’t be a flood of deals, Recof President Hikari Imai says, but the ones there are, are likely to be chunky as Japanese companies expand their frontiers beyond domestic markets where growth prospects are limited.

Apple’s iPhone takes slow boat to China

In China, Apple’s iPhone commands a strange presence. Perenially “coming out”, already widely available on the black market, viewed with trepidation by local telecom players but with undisguised lust by affluent consumers.

Sanford C. Bernstein Toni Sacconaghi thinks the wildly popular device will arrive in the Middle Kingdom before the end of the year, after a long haul of negotiations with state-run telecom carriers keen to control the content to be sold over the gadget.

Audio – The family jewels

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This week’s annual Reuters Global Mining and Steel Summit has been a pretty rich event.

Oh, the guests have been stellar, for sure, but there’s also been a lot of talk about gold and jewelry and the prospect that maybe someday this lousy economy will turn around.

AUDIO – For Nordson — “Get ‘em right, or get ‘em out”

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Throughout the current recession, many of the companies’ executives at this week’s Reuters Manufacturing and Transportation Summit have found an opportunity to review, pare back and possibly add on to their existing business mixes.

Such is the case for Edward Campbell, chief executive of Nordson Corp, which has a uniquely diversified set of businesses under its umbrella and is looking at what makes sense for them going forward.

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